Ceramide is an important cellular lipid involved in signal transduction and the biosynthesis of complex sphingolipids. It can be hydrolyzed into sphingosine, another important signaling lipid, by the activity of ceramidases. Point mutations in the gene (Asah1) encoding one ceramidase, acid ceramidase (AC), lead to the lysosomal storage disorder Farber disease (FD). To investigate the role of AC in mammalian development, we disrupted the mouse gene Asah1 in embryonic stem cells by homologous recombination mediated insertion of an AC targeting vector into the wild-type sequence. Genotype analysis of over 150 offspring or embryos from heterozygous intercrosses revealed an absence of Asah1^−/− individuals at embryonic day (E) 8.5 or later, although the ratio of wild-type to Asah1^+/− individuals from these intercrosses was 1:2. Northern blot analysis showed that AC expression was turned on early in development, by E7.0, and continued through at least E17. In contrast, expression of the related lipid hydrolase, acid sphingomyelinase, was shut down by E11. Asah1^+/− mice survived and lived a normal lifespan, but developed a progressive lipid storage disease in several of their organs, particularly the liver. These histopathological findings in Asah1^+/− animals correlated with an up to twofold increase in the ceramide content of these tissues and a reduction n AC activity, confirming that the gene insertion event disrupted AC activity and ceramide metabolism. These results provide direct in vivo evidence that normal ceramide metabolism, and AC activity in particular, is essential for mammalian development. The animals and embryos described here should be a valuable resource for investigators studying the role of ceramide in cell growth and development, as well as those interested in the pathogenesis of FD and other sphingolipid storage disorders.